New Vine Files Chapter 7, Unrelated to AmazonWine.com

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FILED OCTOBER 1, 2009

Dear Client:

Amazon's former fulfillment partner, New Vine Logistics, filed for Chapter 7 on October 23 in the U.S. Bankruptcy Court for the Northern District of California, which is the same day AmazonWine.com announced it was bowing out of the wine business. At first glance it may seem the two occurrences are connected but Inertia chief Ted Jansen told us it’s just a coincidence. We spoke with Ted this afternoon to shine some clarity on New Vine filing chapter 7 but we’ll get to that in just a minute.

THE SKINNY. According to the bankruptcy filing, NVL has about $7 million in debt and zero assets. Wine Industry Insight and WineBusiness.com both published the story this morning within minutes of each other. Wine Business included a statement from NVL’s competitor, WTN Services, in which general manager Chris Edwards said: “I am not surprised by the actions of this bankruptcy filing, we predicted this as the natural course of events given the debt load New Vine was carrying. The timing is interesting immediately following the announcement by Amazon that they were pulling out of New Vine and the wine category for the time being.”

AMAZON AND NEW VINE NOT RELATED. Ted believes the quote from Chris is unhelpful to the situation because it incorrectly ties Amazon leaving the wine business and New Vine filing chapter 7 together and suggests that ongoing operations are an issue. Instead, he told us “the integration of New Vine assets into IBG has been very smooth and fulfillment customers are being served very well by the IBG team.”

He also said that Inertia “has had the most successful period in its history for bringing new clients onboard, with over 40 new fulfillment and ecommerce clients joining our platform since integration.”

“I find it unfortunate that some competitors continue to try to use the situation to their benefit, instead of competing fairly on their merits of the services we offer the marketplace,” said Ted.

“What is being tied together here is coincidental and doesn’t have anything to do with each other. New Vine Logistics filing for bankruptcy and Amazon exiting the wine business...based on my knowledge of the situation, were coincidental decisions of behalf of those two parties,” said Ted.

INERTIA OWED MONEY FROM THE “OLD” NEW VINE. Secondly, the New Vine bankruptcy filing is unrelated to Inertia Beverage Group. Instead, it is “the remaining corporate remnants of the old New Vine Corporation going through its final wind down steps as a company.” In other words, that’s the old New Vine that filed chapter 7. “New Vine Corporation has nothing to do with Inertia’s ongoing operations.”

In fact, Inertia is one of the creditors that are owed money from NVL. “We are part of that creditor group that has claims in the bankruptcy proceedings,” said Ted.

You’ll recall this summer when Inertia Beverage Group purchased the lead creditor position from Silicon Valley Bank and then put NVL in a foreclosure process. Inertia held an auction for NVL’s assets and ended up purchasing the company for $4.5 million. That $4.5 million went towards paying off Inertia’s debt as lead creditor but was not sufficient enough to cover the full amount.

“Money we put in New Vine to fund its operations before auction is also debt that still hasn’t been satisfied,” said Ted. “The assets that we bought at auction went against satisfying debt that’s owed to us” but “the assets we purchased weren’t sufficient in value to satisfy the credit claims we have.”

As you may know, Chapter 7 is an option in the bankruptcy code in which a firm is liquidated after the courts have determined that reorganization is not worthwhile. A trustee is charged with liquidating all assets and distributing the proceeds to satisfy claims in their order of priority. In Chapter 7 bankruptcies the creditors often receive a fraction of the value of their claims and the stockholders receive nothing.

It is, however, possible that the bankruptcy court could require IBG to return a portion of NVL’s assets to satisfy its other 180 creditors.

TABLE WINE HAS SOLID SEPTEMBER WITH SUPER-PREMIUMS MAKING SIGNIFICANT GAINS

The wine category had a solid September with several shining lights. French imports had one of the best months in a long time and wines priced $20 and above posted strong growth, second only to box wines. Domestics are still outpacing imports with especially solid results coming from California, but Argentina continues to break the mold each month.

Most wine consumers in America were drinking domestic white wine in September, which includes Labor Day (Sept 7), according to IRI scan data from the four weeks to October 4. Growth of domestic wine far outpaced imports once again, particularly in dollar sales where domestics grew 4.6% and imports grew only 0.1%. Imports lost almost 1 dollar share point in September. Overall, domestic table wine producers took a price increase of 1.8% per 750ml bottle of wine. Imports took only a 0.2% price increase. We assume this is partly why domestics (2.8%) and imports (-0.1%) are a little closer in volume.

WHITE WINE OUTPACES RED. Not surprisingly given the time of year, white table wines grew far beyond reds in dollar sales although volume was much closer. Dollar sales of white wines were up 5.2% and reds were up 2.9%, but volumes of white wines grew 3.9% and red wines rose 3%.

PINOT TAKES LARGEST PRICE CUT. In terms of varietals, the biggest price decrease came from pinot noir, which dropped prices -3.8% per 750ml bottle of wine to $9.37. Not long ago pinot noir dominated growth and price but September saw a shift. Merlot also took a dip, with price down -2.9% to $5.71 a bottle. Fume/sauvignon blanc, red blends/meritage and white zinfandel were the only three that raised prices. Fume/sauvignon blanc and red blends/meritage led in both dollar and volume growth. Syrah and white zinfandel saw the largest decline in growth.

CALIFORNIA LEADS IN DOMESTICS. California table wines performed better than Oregon and Washington wines because they managed to post the largest increase in dollar sales and volume growth while taking price up 1.9% per bottle of wine. Dollar sales of Oregon wines rose only 0.6% and volume grew 6.1% likely due to price cuts of 5.2%. Washington producers cut prices 0.9%.

ARGENTINA WINS, FRANCE SEES MAJOR IMPROVEMENT. Once again Argentina posted the most growth by far, with sales up 55.2% and volume up 45%. Spain came in a distant second with dollar sales up 18.2% and volume up 21.6%. New Zealand came in third with sales up 13.6% and volume up 13%. The Argentineans raised prices a whopping 7% to an average $8.43 a bottle, while Spain dropped prices -2.8% and NZ increased prices by just 0.5%.

France managed to improve its numbers in September with sales up 1.7% and volume up 2.2%. Prices were down only -0.5% to an average $9.57 a bottle. Italy and Australia are still in the red with Italy taking the biggest dip. Sales of Italian table wine fell -4.6% and volume declined -5.3% with pricing up 0.8%. Australians, meanwhile, saw dollar sales fall -3.7% and volume down -0.9%. After Oregon, Australia took the biggest price decrease, down -2.8% to $6.39.

BOXED WINE AND SUPER-PREMIUMS GAIN. The price categories that Americans flocked to in September were all over the board. Boxed wine priced $2 and over saw the most growth, but table wines in the $20 and up category weren’t far behind. This is great news since many producers felt that category was dead. Other price groups that stood out include: $3-$5, $8-$11 and $11-$15.

KORBEL FATHER AND DAUGHTER AGREE TO DROP CHARGES

Korbel owner Gary Heck and his daughter Richie Ann Samii have agreed to go quietly into the night after a history of publicly airing family disputes. The San Francisco Chronicle reports that Gary and Anne “agreed to drop all claims against each other ‘throughout the universe’ and ‘from the beginning of time,’” according to Sonoma County Superior Court documents released this week. Both sides agreed to keep details of the court battle secret although it appears unlikely the two made amends. To view our past coverage, click here.

Until tomorrow, Megan

“All I need to make a comedy is a park, a policeman and a pretty girl.”Charlie Chaplin

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